Tegna Inc (TGNA) 2007 Q3 法說會逐字稿

Good day, everyone, and welcome to Gannett's third-quarter 2007 earnings conference call. This call is being recorded. Due to the large number of callers we will limit you to one question or comment. We'd greatly appreciate your cooperation and courtesy. Our speakers for today will be Mr. Craig Dubow, Chairman, President and CEO, and Gracia Martore, Executive Vice President and CFO. At this time I will turn the call over to Ms. Gracia Martore. Please go ahead.

Thanks, Shannon, and good morning. Welcome again to our conference call and webcast today to review our third-quarter 2007 results. Hopefully you've had a chance to review the press releases from this morning which also can be found at www.Gannett.com.

As Shannon mentioned, with me today are Craig Dubow, Chairman, President and CEO, and Jeff Heinz, Director of Investor Relations. Craig will begin with an overview of the quarter and update of the strategic initiatives that we have undertaken and I'll follow Craig's remarks with some additional details on the quarter. Craig?

Thanks, Gracia, and good morning to everyone. As you saw in the release this morning, Gannett earned $1.01 per share from continuing operations during the third quarter. These results reflect both the positives and negatives that have been impacting us for a while now. On one hand, our financial discipline is the best in breed and our strategic efforts, including the growth and development of online, are moving along well. Plus, Newsquest performance continued to improve.

On the other hand, challenges of an extremely tough ad environment remain. This is particularly true in a number of our markets hurt by the slowdown in real estate. There are also was the near absence of the political spending that boosted results for the third quarter last year. Finally, we took over $14 million in severance expenses and facility consolidation costs related to a number of efforts, both in the U.S. and in the UK.

We generated total operating revenues for the quarter of $1.8 billion. Despite the charge that I just mentioned, our operating expenses were down almost 2%. Operating cash flow for the quarter was $473 million. Our Internet investment performance improved and our interest expense was down considerably compared to third quarter last year. The result was net income from continuing operations of $234 million.

Domestically at our community newspapers the advertising environment continued to be very challenging with the classified category impacted the most dramatically. The housing slowdown has hindered ad demand in several of our markets. Here's what I mean -- our properties in Arizona, California, Florida and Nevada account for roughly one-fourth of the advertising revenues for our domestic community newspapers including Detroit in the quarter, but they also represented more than 40% of the decline in advertising revenue at our domestic community properties and more than 55% of the decline in NIBT.

Our planning for the rest of the year and for 2008 reflect our belief that the real estate market slowdown and its impact on domestic advertising will continue well into next year. Gracia will discuss this in more detail in just a few moments.

We have a different situation in the UK. Results at Newsquest were much better than our domestic community newspapers as they cycle out of their employment slump. The restructuring efforts of the management team in the UK have led the way for the rest of the Company as we work through them cyclical issues evident in some of our U.S. markets.

Several of our Newsquest advertising categories grew in the quarter in pounds with trends moving in the right direction, particularly in classified. Employment improved steadily over the course of the quarter as did real estate. Their efforts in finding new revenue in restructuring their businesses are helping drive the positive trends and those benefits will certainly continue in 2008.

Looking at USA Today, advertising revenue was down 6.6%. Although there was solid growth in some categories, the paper's results for the quarter reflect the choppy national advertising market. Pro forma revenues in our broadcasting segment were down because they were matched against $19 million in political advertising that helped the third quarter of last year. But there is some good news here, nonpolitical advertising in the quarter was up due to solid growth in several categories and almost breakeven results for automotive. And you can be certain that our broadcasting folks are looking forward to the Olympic Games in Beijing and what looks like a dynamic election season in 2008.

Online and revenue growth at Captivate partially mitigated the gap as well. Although the election cycle is beginning to rev up, next quarter will be stacked up against roughly $58 million in political advertising that occurred in the fourth quarter of 2006.

Our online initiatives are continuing to take shape and revenue growth in that area was solid. Companywide our online revenues were up more than 16%. Domestically the community newspapers were about 7.5% higher and USA Today grew more than 18%. PointRoll's revenue was up again this quarter about 26%. The increase in the broadcast segment's online revenues was more than 37%.

In the UK Newsquest's online revenues advanced a healthy 46% in pounds. Traffic at our domestic site for September totaled approximately 21 million uniques and reached 13.4% of the Internet audience. Newsquest's sites had over 76 million page impressions and about 5.2 million unique users. Finally, at CareerBuilder network revenue reached 17% for the quarter and traffic averaged over 22 million.

Let me discuss our digital strategy in a little more detail with you. An important component of our digital strategy is linking our strength and knowledge of local content with national scale. We believe they can be powerful platforms for advertisers looking for solutions that are national as well as hyper local. We see tremendous opportunity for national brands that are the gateways to local content and are actively seeking those prospects that have the same characteristics.

We also want to build digital brands that are national in scope, similar to what we have done with CareerBuilder, Classified Ventures -- CV is the online employment leader in the U.S. and is expanding overseas. Classified Ventures announced in October that their cars.com site will be the exclusive provider of used car listings and exclusive listing service for private party sellers on Yahoo! autos. At the same time they are ramping up their promotion and marketing and expect to showcase on the Super Bowl. You'll recall that Classified Ventures also has a presence in the real estate market through their apartments.com and HomeScape sites.

Another key element of our digital strategy is on the local front. When we were a local market, either in publishing or in TV, our call is to become the go-to provider of local content and information delivered on any platform. Underneath this foregoing digital operation is that infrastructure that we are continuing to build out, to be truly platform agnostic, delivering content where, when and how our customers want it. We are investing in other operations as well such as 4INFO in mobile, Planet Discover in local search and PointRoll in rich media.

Meanwhile, a continuing aspect of our overall strategic plan is to support and enhance our core businesses which continue to deliver strong free cash flow each and every day. We are pushing forward aggressively on these strategic initiatives. We believe that the ongoing execution of our strategic plan coupled with the financial discipline that you have come to expect from the Gannett Company has positioned us very well for future growth.

Finally, before I turn over the call to Gracia I want to welcome Dave Lougee to Gannett as the President of Gannett Broadcasting. Dave brings a wealth of experience and energy plus strategic insight to broadcasting as we move through this transformation. So now let me turn the call over to Gracia.

Thanks, Craig, and good morning again. Before we go into the detail on our quarterly results I need to remind you that our conference call and webcast today may include forward-looking statements and our actual results may differ. Factors that might cause them to differ are outlined in our SEC filings.

This presentation today also includes certain non-GAAP financial measures. We've provided a reconciliation of those measures to the most directly comparable GAAP measures in the press release and on the Investor Relations portion of our website.

As Craig mentioned, I'll be digging a little deeper into our results beginning with the publishing segment. As you saw, our advertising revenues for the third quarter were down a little over 5.5% on a pro forma basis, and because we benefited from the U.S. dollar/sterling exchange rate they would have been a little less than 7% lower on a constant currency basis. Local was down 3.9% while national also down about 4% and classified declined 7.7%.

Our domestic newspapers did not perform as well as Newsquest due primarily to the slowdown in the real estate market that had a significant negative impact on the classified categories. Classified advertising at our domestic community newspapers lagged last year by about 13.7%, but most of the decline was attributable to the four markets Craig mentioned -- Arizona, California, Florida and Nevada. Once again the percentage drop in advertising revenue was two times larger in those four states than in our other community markets.

To put this in better perspective, those four markets generated 24% of ad revenue for our domestic community newspapers in the quarter, but drove 43% of the ad revenue declines for those properties.

Focusing for a few moments on the domestic classified categories, real estate advertising was down over 21% in the quarter as real estate's slowdown continued. We can't overstate the impact real estate is having on the economies in those markets. In fact, three of the four markets we mentioned, Nevada, California and Florida, were ranked as the top three states with the highest foreclosure rates in the country in August and Arizona was among the top 10.

Nevada's foreclosure rate was three times the national average, one for every 165 households. California reported the most foreclosures of any single state, up 48% from July and over 300% from August last year. And Florida reported twice as many as the year before. It is those kinds of statistics that lead us to believe that the real estate slowdown will linger into next year. We will be planning accordingly and position ourselves to take advantage of our operating leverage when the cycle turns, just as we have done at Newsquest.

Employment was impacted as well domestically; it was down 14.8% in the quarter. The percentage decline was almost four times greater in those four states than in our other community newspapers. Automotive continued to be challenging as well, down 11.8%.

Moving to local advertising, it was 3.9% lower overall and 5.1% lower excluding Newsquest. In the department store category we were up against some heavy spending from Federated May related to their name change last year. National advertising declined a little over 4% in the quarter as USA Today's advertising revenues lagged last year. For the quarter the travel, advocacy, pharmaceutical and restaurant categories were up strongly, although their growth was offset by softness in text, auto, Telecom, financial and retail categories.

Reflecting the choppy nature of national advertising, USA Today's ad revenues were almost 7% higher in August compared to a 7% decline in September. And it now looks like USA Today's revenues will be positive in October.

Turning to the UK and Newsquest, total revenue for Newsquest was down just slightly for the quarter while ad revenues were almost 1% lower in pounds. National increased almost 2% and real estate was up almost 5%. Newsquest had a strong finish to the quarter. In September Newsquest's classified revenue was 1.3% higher driven by growth of almost 9% in real estate, a little over 2% in employment and almost 7% in other classifieds. Operating expenses were down slightly as well resulting in higher NIBT in the quarter.

Total revenue in our broadcasting segment was 3.4% lower, and on a pro forma basis 5.1% lower. We did have a small amount of political spending in the quarter, but it was nowhere near the $19 million that was generated in the third quarter last year. If you exclude the impact of political, our net time sales were up 2.1% this quarter. Positive growth in just about every category, and particularly packaged goods and Telecom, drove the increase. Auto was up in the high single digits in September and was down just slightly for the quarter.

Pacings for the fourth quarter are down in the midteens at this point compared to the fourth quarter last year. Once again, as Craig mentioned, we are up against $58 million in political spending that was achieved during that quarter in '06. The election cycle turns back around in 2008 and with the addition of the Olympics, as Craig said; the members of our broadcasting group have every reason to be enthusiastic about next year. Please keep in mind though that pacings information can be volatile and, as always, we'll keep you updated in our monthly reports.

Moving now to expenses, total expenses for the Company declined almost 2% in the quarter on a reported basis and were down 2.1% on a pro forma basis. We kept a keen eye on cost control and benefited from lower newsprint expense as well. Expenses were despite the $14.5 million in severance and facility consolidation costs related to continued efficiency efforts, both here and in the UK, and as well the impact of the higher exchange rate. In fact, on a constant currency basis, excluding those severance and consolidation costs, expenses were down 4% companywide.

Turning to the newspaper segment, expenses were down 2.1%, newsprint declined 13.4% in the quarter. That decline reflected lower volume of about 10% and about 4% lower newsprint prices. On a pro forma constant currency cash basis newspaper segment expenses, excluding the severance and consolidation costs, were 4.5% lower in the quarter. In our broadcasting segment, as you saw, operating expenses were almost 1% lower on a pro forma basis, but 1.4% higher on a reported basis due to the acquisitions we completed in last year's third quarter.

Turning back to newsprint for just a second, newsprint prices continued to slowly erode throughout the third quarter. Market fundamentals remain in a state of imbalance driven by soft consumption and inflated producer and publisher inventories. This disconnect between supply and demand prevented producers from raising prices on September 1st as planned. Several producers have now announced another price increase for November 1st. Whether pricing continues to drift lower or not we'll work to ensure that we strategically position ourselves with the best deals available.

Turning to the non-operating area, the growth in operating income for the quarter was due in part to very solid results for our digital investments like CareerBuilder and Classified Ventures and interest on some financial investments. We also benefited from lower interest expense as well due primarily to lower average debt outstanding.

Moving over to the balance sheet for a second, total debt at quarter end stood at $4.4 billion and cash and marketable securities were $91 million. At this point our all-in cost of debt is 5.25% with commercial paper at 5.5%, but that rate will fall further over the next month.

During the quarter we entered into interest rate swaps fixing the rate on our $750 million floating-rate notes due in 2009. Those notes were priced at three-month LIBOR plus 20 basis points. The swaps will save us about $1.5 million versus the floating-rate notes from their inception in August through the end of November.

Capital expenditures for the quarter totaled approximately $34 million and $94 million year-to-date. With respect to shares outstanding, basic shares at the end of the quarter were 232 million and the quarterly average was 232.4 million. We repurchased 1.1 million shares in the third quarter and 2.8 million shares year-to-date. Additionally, as you know, our Board of Directors approved in July a 29% increase in the quarterly dividend to $0.40 per share. Now we'll stop and take your questions. Shannon?

(OPERATOR INSTRUCTIONS). Craig Huber, Lehman Brothers.

Good morning. Thank you. Just a light of what happened with Belo and Scripps breaking up their company recently -- we've asked this before -- do you have any inclination to split off your TV group here, particularly ahead of a political/Olympic year next year?

When you take a look, first of all, at Belo, and two-thirds of that company being on the broadcast side, it makes sense. When you look at our portfolio, we're virtually the opposite. And then just to shift over very quickly, with Scripps and what they did yesterday, certainly their core side with newspaper and TV staying together, I think really suggests the position that we are in and are staying at least at this particular time as we all go forward.

Have your thoughts, though, changed on that front at all? Do you guys contemplate perhaps this?

We look at all of these and discuss things, but at this time, no, our position has not changed.

Okay. And then switching to just the newspapers, as you guys think out strategically about your pricing for your newspaper advertising for next year cost categories, what should investors think about here for potential ad rate hikes across the categories? Is there any potential for increased discounts as we go into the new year? Thank you.

As you know, Craig, we are just in the throes of budgeting for next year and we will share all of that information with the investment community in early December when we go to the media conferences. Just as a general statement, pricing varies category by category and market by market, so it's much too early to make a blanket statement about pricing going forward.

Do think investors, though, should expect any material changes versus your pattern over the last five, 10 years?

I don't think any material changes versus our pattern over the last few years.

And then the last little knit pick -- what were the net network revenues in the quarter for CareerBuilder? Thank you.

For CareerBuilder the network revenues -- we'll just try to quickly look that up as maybe we go to the next question and we will try to ferret that out.

That's fine. Thank you.

Alexia Quadrani, Bear Stearns.

Thank you. Just looking at those four markets that you highlighted as being the worst hit -- Arizona, California, Florida, Nevada -- is there any way you can -- knowing that the real estate downturn, as you said in your opening comments, is likely to persist for a while in those markets, is there any way you can really try to help the profitability the way you did in Newsquest when we were in that period of downturn in those markets?

And then a second question, again on those main markets, are you seeing worse retail or local advertising as sort of a ripple effect into the other areas of your advertising in those markets than you are in the rest of the country?

Alexia, clearly we are taking a number of steps, both in those four markets as well as in other areas, to address efficiencies and look at further consolidations and centralization of various processes where that makes sense and where we can drive cost savings. And certainly in those markets we are looking to do those same things.

We continue, as did Newsquest, to look at restructuring and to bring the expense side obviously in sync with what the revenue opportunity is, but at the same time we don't want to let a short-term economic cycle, which we believe the real estate boom/bust cycle is, lead us to do things that are not in ultimately the best interest of the local franchises that we have. So it's a very careful balancing act that we've got to participate in. And I apologize, your second question --?

The other areas of advertising in those markets, are you seeing a ripple effect, any weakening in retail more so than the rest of the country?

Yes. I think we're particularly seeing in the areas of furniture where to the extent that there are number of foreclosures, there are less new houses being built in being occupied; furniture sales reflect those kinds of activities. And it is having an impact obviously in those four markets on other categories that would be -- the consumer would be sensitive to on spending.

And then on October, I know you mentioned you're expecting a bounce back in USA Today in October, I believe you said that in your comments. Generally though for other parts of your business are you seeing similar trends in October or September?

It's probably a little bit too early to say. I think that when we look at our domestic operations, as we said, on the broadcast side we're up against some very significant numbers on political in the quarter. On the U.S. community newspapers it's very early in the quarter, but I would say in general that we don't see any material changes one way or another in the quarter. Again, excluding that 53rd week that had an impact on the fourth quarter last year. So on a 52-week to 52-week basis that quarter seems to be at least starting out not dissimilar to the way it ended. Newsquest has continued to make progress; we would hope that they will continue to make progress as well in the fourth quarter.

Thank you.

Fred Searby, JPMorgan.

Thanks. A couple quick questions. One is just following up on CareerBuilder, if you could just give us any thoughts on what the plans are if potentially to monetize. I guess in the past you all have been somewhat dismissive of the idea, but if there's any rethinking there. And then secondly, with Newsquest it sounds like real estate classifieds are quite strong in what are your thoughts given some of the issues that are materializing in the mortgage market in the UK? Thank you.

Fred, you've given me a good entree to catching up on the very first question. CareerBuilder network revenues were $200 million in the third quarter; they increased about 17% over the third quarter of '06. So just to clean up that little housekeeping item.

With regard to CareerBuilder, I would not say that we've been dismissive of the idea; I think what we've indicated is that we continue to enjoy, as do our partners, operating CareerBuilder as it is. They have made tremendous strides. Being a private company has not, I don't think, impeded their ability to grow the business very importantly. But obviously all of us look at ways to unlock value in our company and if down the road that was the appropriate thing to do we would certainly consider it. But at the moment we believe that the way we are operating CareerBuilder is in the best interest of all the partners.

As to Newsquest and their real estate revenues, we have seen a nice pickup in real estate revenues. I think they are entering into that sweet spot where houses are not being put on the market and being sold before they are even actually on the market for a few days. So houses are starting to stay on the market a little bit longer and obviously that sweet spot for advertising is about where we are beginning to be. So we'll just have to see how that plays out. We don't have a sense that there's going to be a demonstrably different trend in the fourth quarter at Newsquest on the real estate side, but we'll see as the numbers come in.

Okay, thank you.

Karl Choi, Merrill Lynch.

Good morning. I wonder if you can give me the figure for FTE, how much it was down at the end of the quarter, year-over-year, and also should we expect a similar amount of severance in the fourth quarter?

Yes, with regard to FTEs -- on an apples-to-apples basis FTEs I think are down in the 6% range year-over-year. Vis-a-vis the fourth quarter, there is the potential for additional severance costs. As you know, our Detroit newspaper partnership announced a buyout offer there for a number of positions and we'll just see how that plays out. But yes, I believe there will be additional severance costs and we'll just have to give you a better sense of that probably at the December conference.

And Gracia, can you give us the newsprint price decline excluding currency? Because I think the 4% that you gave probably included currency, right?

Yes, it did. Let me dig that out and I will come back to you with that number.

And also, do you have a figure for cash expenses excluding newsprint, how much it was down in the quarter?

Yes, as I said -- well, not excluding newsprint I don't, I just have cash expenses, pro forma constant currency excluding the severance for the newspaper group down about 4.5%.

Okay, thank you.

John Janedis, Wachovia Securities.

Thank you. Craig and Gracia, you're obviously in a lot of markets and, when you look at the U.S. portfolio beyond the four that you mentioned, can you maybe share some thoughts on what you're seeing in the local markets and maybe your sense of the tone as we head toward the end of the year? And then maybe sneaking in a quarter question, Gracia, in terms of the cost side can you give us a 13-week pro forma expense number for the fourth quarter of last year?

Let me take the last question first. I can't give you a -- we didn't release pro forma numbers for the quarter ex the additional week. What we did say about the fourth quarter last year was that the 53rd week for the Company added about $0.04 to $0.05 in EPS. So that's the guidance that we gave. Just getting back to the question that I had previously on newsprint, constant currency price was down about 5%.

John, with respect to the other markets, as you asked, what we're seeing is a better opportunity. I would say it is nowhere near as uneven as what has occurred, particularly in these four states that we're talking about. The Midwest frankly has done a bit better for us. I don't want to get ahead of that, but it is doing a bit better in the key areas. But beyond that it's just slightly ahead. When you extract these four keys I think you can pretty well lay out what the other key categories are going to represent.

Just in terms of advertisers, are you feeling, on the margin ex classifieds, any better or worse than maybe you felt a quarter or two quarters ago?

You know, it's probably about the same. I don't think there is any tremendous improvement, at this time anyhow, with the exception obviously in the UK where pretty much, as our management team called it over there, it is beginning to happen. And particularly, as Gracia talked about, in the employment side, as well in the real estate side. So over there it's a bit of a different story and I think a number of months ahead of where we are domestically.

Thank you.

Peter Appert, Goldman Sachs.

I'm hoping you might share with us how your thinking is evolving in terms of priorities and capital allocation. And I'm wondering if in particular the slight increase in share repurchase activity in the third quarter might point to more in that direction?

Peter, thank you for the question. We want to look very opportunistically and we will continue as it is appropriate. Obviously on the other side you saw what we have done from the dividend increase from our last Board meeting. Aside from that I think we're going to continue to look from our strategic investments in the best way possible and, as I said in the comments, we are very much looking at how we can tie local opportunities that will scale nationally.

So those three keys are really where our focus is at. Beyond that, again, if there are other opportunities in core sides to this, either with duopoly possibilities or with other areas that we can look at consolidation for printing and other synergies within the core, believe me, we have very strong interest and are staying very open to those possibilities as well.

The strategic acquisitions, Craig, have been relatively small thus far. Are you thinking of perhaps stepping up the pace of activity there?

We would love to if there is something appropriate that would fit with our plan. As you know, we look at and continue to look at everything that is out there. And as yet the very large sized ones have not fit or have been in a pricing position that has made economic sense to us and how we're trying to go about this.

And there are a couple of things that we may be talking about in the short-term here in those areas that speak to the strategic initiatives that Craig talked about.

Okay, great. Thanks. Gracia, one other thing, have we reached the point where the operating income contribution from Classified Ventures, CareerBuilder, some of the other Internet assets are sufficient that this other income line could be a consistent positive on a go-forward basis?

You know, it's hard to say because there are swings in the timing on those investments in terms of marketing expense and activities. In the fourth quarter, for instance, of last year I think we had about $11 million of nonoperating income which was a function of a sale of some digital -- some investments. So it should be in the positive category, but again, it may shift as to level depending on some specific one off items quarter-to-quarter.

Okay. Thanks, Gracia.

Paul Ginocchio, Deutsche Bank.

Thanks. Help me understand the level of severance in the third quarter. Is it $14 million? What's it been averaging over the last couple quarters just to help me size it. And if I can sneak another one in, just display CPM rates, how much are they up and is the improvement accelerating or decelerating? Thank you. On the display side? Thanks.

I'll start with the severance costs and then Craig can talk about display. On the severance costs, of the $14.5 million about a little over $12 million of that was severance and the other $2 million was related to consolidations and press transfers which is reflected in the depreciation line; there's a couple of million dollars of additional depreciation in the newspaper segment.

In the last couple of quarters we have identified when we have had sizable severance costs. Last quarter they were much more nominal, they were sizable in the fourth quarter of last year and we highlighted that for you and we'll continue to highlight them when they are of a size that they are fairly material.

Paul, I would say, just in response to the CPM side, probably outside of the areas that we have cited in the four specifics, you're going to see things fairly consistent at this point.

I'm sorry, I'm talking about online. I apologize.

Oh. From an online perspective, yes, I think we are seeing some modest increases, certainly as we're going along here. And that has been pretty consistent from quarter-to-quarter in what we've been able to do in virtually each of the areas from a division standpoint.

And I think as we've been able to do some additional targeting we've obviously seen better CPMs on the video side where our video streams have increased dramatically. We've been able to see some attractive CPMs versus the normal display CPM.

And that -- just to piggyback on the video side with what Sue and certainly the broadcast division have done by working together on that, that is continuing to be exploited in a significant way with the training that has continued now for about a year and a half. And just by looking at the sites you can see dramatic use of video at this time. The advertising sales folks are working very hard on further developing that in a consistent way as we all move forward. So we're very excited with where that one is heading.

Joe Arns, Banc of America.

Good morning. With respect to your cost efforts, do you consider your staff reductions this year permanent? And second, you mentioned site consolidation, but are you also looking to offshore certain functions?

With regard to the staff reductions, a number of those are permanent as they relate to, for instance, we consolidated and are in the process of consolidating our circulation call centers. So those would be permanent reductions as we consolidate about 65 centers down to three. In other areas where we're using technology more efficiently and effectively, those would be permanent reductions. But obviously to the extent that there are business conditions which will ultimately pick up, then clearly there are some of them where we would add back some staffing.

That would be specific really in the advertising sales area, really the feet on the street opportunities as improvements would come.

And with regard to off shoring, I know in the newspaper division we are looking at some ad production overseas. But we have a number of initiatives going on right now where we're looking at both domestically consolidating things and centralizing things. And then also looking at the possibilities of whether it makes more sense to outsource overseas or to keep them domestically but to just simply centralize them.

Great, thank you.

Barrington Research, James Goss.

Thank you. One related to your Internet activities. Aside from the components that wind up in the other income category, is there any way or any willingness on your part to size that revenue base relative to the total as it currently exists? And also look at the operating margins to the extent that you can make what you feel are appropriate allocations. Are they more or less profitable right now than your traditional businesses?

In terms of sizing it, Jim, I think each year we indicate at the end of the year the total size of our online operations. I think we talked about the fact that last year online revenues were over $400 million. We give growth rates I think each quarter to help with that process and we will obviously report at the end of the year where we stand on the online side.

That being said, as you mentioned, that doesn't include obviously the pieces of the joint ventures that are held out in the network and other places. Vis-a-vis the operating margins, we try to do our very best obviously to fully allocate costs to our online efforts. And obviously without the joys of having newsprint and ink those margins are seemingly better than our print margin or our broadcast margin. But obviously that will play out over the long-term and we'll see where all of that takes us.

Another question -- and maybe Craig can address this. I think you mentioned time sales up slightly excluding political in the broadcast area. Next year the Olympics will be in the summer period which is right about when the conventions are being held. And I'm wondering how much you do increase the time slots available to advertising and do they sort of conflict with one another and you're not been able to take full advantage of a strong political season and that you'll have both political and Olympic sort of competing for time at the same time and squeezing out other advertisers? How does that seem to work in general?

Jim, I think frankly with what will be a scarcity of inventory as we go through that, it will play out in a very positive way for us. As we are anticipating right now, the political will really been picking up as we go from quarter to quarter. Again, we're not as concerned with really the overall inventory perspective because we think we can really leverage that in an appropriate way because of all the other key areas that we have from our local news perspective as well to take advantage of those individual slots that we have available as well.

Certainly when you look at the other networks and what they are going to have from an availability standpoint, I think there is going to be enough that we can disperse this and positively move this forward. But I do look at it very specifically as an advantage to us.

All right, thanks very much.

Michael Kupinski, Noble Financial.

Thank you. Most of my questions have been answered, but I just had a follow-up question on the political and Olympic year next year. USA Today historically did well in Olympic and political years with a boost from Olympic advertising. I know that you guys have done specials in USA Today in the past. Are you seeing any dollar commitment for Olympic advertising at this stage or is it too early? And if you can just remind me what USA Today did in Olympic revenues in maybe 2006 but more comparatively in 2004?

You know, we'll have to take a look at the comparisons and Gracia will pull that. I would say probably, Michael, ad this point it's a little bit early yet in what we're seeing from the USA Today perspective. I know we will have a terrific effort over there in what will be taking place from a special opportunity perspective. And as we have done in the past, they have done a very fine job with it. Gracia, do you have a sense?

Just to sort of size it, Mike, in USA Today for Olympics, that's typically measured in the single millions of dollars. So it's nowhere near obviously what the amount is on the broadcast side where, for instance, in 2004 with the summer games in Athens I think we had almost $29 million of net Olympic revenue; in the winter games in '06 a little over $22 million in Olympic revenues. So USA Today does have a good showing, but it's usually in the single millions of dollars.

Right. And also, did USA Today pick up political advertising in '04? Because if I recall there was a little bit of displacement off of television into USA Today in advocacy and --?

The advocacy category definitely, but again we're talking single millions of dollars, we're not talking the kind of level that we saw in the broadcast side. But certainly that will play a part, and to the extent that the political season turns out to be as robust as the pundits are suggesting, I suspect that USA Today will fair very well in comparison to other years.

Okay, terrific. Thank you.

Edward Atorino, Benchmark Capital.

You've talked about the new initiatives and stuff. Could you maybe give us some sense of whether there are any dollars starting to come from all these efforts other than website hits and all that stuff?

I think, Edward, the key here is we're continuing to press. When you look immediately at some of the most visible elements, the mom sites are beginning, and the answer would be yes, from a revenue standpoint. Certainly from the number of uniques that we are seeing we are finding quite specific ways of increasing that traffic through certainly the social networking aspects of those sites and that is coming together in a very nice way for us. And I think what you're going to see as we go along is a continuance. And as we further develop new areas in a very short fashion here that will further continue.

And to add on to what Craig said, on the video side we're beginning to see the dollars accumulate, albeit they're small dollars at this point, that they're starting to be in the seven figure range with regard to our video efforts. And then in other areas such as our sales restructuring efforts and our sales training efforts in the newspaper division, we are -- obviously the large department stores are going to do what they do and we'll have to see where the fourth quarter takes us with the large department stores.

But on those small to midsize advertisers that we've really focused on, where we have in fact restructured the salesforces, we're beginning to see nice additions to the number of accounts as well as the dollars coming out of those accounts. So in the areas that we are focusing, both on the digital side as well as the sales restructuring side, yes, as Craig said, we are seeing those dollars come in. But we are in the nascent stages of those efforts rather than really in the mature stage of those efforts.

Got you. I don't know if anybody asked what is sort of the 50 pound gorilla in the room. Would you comment on any thoughts about breaking up the Company. Somebody had to ask it?

Oh, we had talked on that earlier. (multiple speakers) the first question.

I must have missed it. Okay, thank you.

You're welcome.

All right.

I think, Shannon, we have time for one more question.

Peter Jacobs, Wells Fargo.

Thank you. This is a follow-up question to the question that related to the size of the online revenue. If we look at that, the $400 million that you sited back at the end of 2006, is that spread both in the newspaper publishing business segment and the broadcasting? Meaning does it include the Captivate business as well?

No, when I'm giving you those digital revenues we are just simply counting the online revenues that our broadcast stations are producing; we are not including Captivate in that number. And it is spread across Newsquest, broadcast, our community newspapers, PointRoll -- USA Today.

But it's in the broadcasting business segment?

Yes, it is.

Okay.

And we've reported on the growth of that business each quarter.

Right, so I'll be able to go back and get (multiple speakers)?

Yes.

Yes, absolutely.

Thank you.

Thank you very much.

That is all the time we have for questions. And Ms. Martore, I'll turn the conference back over to you for any additional or closing comments.

Thanks very much for joining us today. If you have any further questions you can give Jeff a call at 703-854-6917, or me at 6918. Have a great day.

That does conclude today's teleconference. Thank you for your participation and have a wonderful day.